701.20(2)

(2) Definitions. In this section:

701.20(2)(L)

(L) “Sui juris beneficiary” means a beneficiary not under a legal disability. The term includes all of the following:

701.20(3)

(3) Fiduciary duties; general principles.

701.20(4c)(b)3.a.

a. Income beneficiaries currently eligible to receive income from the trust.

701.20(4c)(b)4.

4. States that it is given in accordance with this subsection and discloses the following information:

701.20(4c)(b)4.a.

a. The identification of the trustee.

701.20(4)(b)

(b) In deciding whether and to what extent to exercise the power conferred by para. (a), a trustee shall consider all factors relevant to the trust and its beneficiaries, including the following factors to the extent they are relevant:

701.20(4)(b)5.

5. The assets held in the trust; the extent to which they consist of financial assets, interests in closely held enterprises, tangible and intangible personal property, or real property; the extent to which an asset is used by a beneficiary; and whether an asset was purchased by the trustee or received from the settlor.

701.20(4)(b)6.

6. The net amount allocated to income under the other subsections of this section and the increase or decrease in the value of the principal assets, which the trustee may estimate in the case of assets for which market values are not readily available.

701.20(4)(b)7.

7. Whether and to what extent the terms of the trust give the trustee the power to invade principal or accumulate income or prohibit the trustee from invading principal or accumulating income, and the extent to which the trustee has exercised a power from time to time to invade principal or accumulate income.

701.20(4)(c)1.

1. If possessing or exercising the power to make an adjustment would disqualify an estate tax or gift tax marital or charitable deduction in whole or in part.

701.20(4)(c)2.

2. That reduces the actuarial value of the income interest in a trust to which a person transfers property with the intent to qualify for a gift tax exclusion.

701.20(4)(c)4.

4. From any amount that is permanently set aside for charitable purposes under a will or the terms of a trust and for which an estate tax or gift tax charitable deduction has been taken unless both income and principal are so set aside.

701.20(4)(c)5.

5. If possessing or exercising the power to make an adjustment causes an individual to be treated as the owner of all or part of the trust for income tax purposes, and the individual would not be treated as the owner if the trustee did not possess the power to make an adjustment.

701.20(4)(c)6.

6. If possessing or exercising the power to make an adjustment causes all or part of the trust assets to be included for estate tax purposes in the estate of an individual and the assets would not be included in the estate of the individual if the trustee did not possess the power to make an adjustment.

701.20(4)(c)8.

8. If the trust has been converted under sub. (4g) to a unitrust.

701.20(4)(c)9.

9. If the trust is an express unitrust, as defined in sub. (4j) (a).

701.20(4)(d)

(d) If par. (c) 5., 6., or 7. applies to a trustee and there is more than one trustee, a cotrustee to whom the provision does not apply may make the adjustment unless the terms of the trust do not permit the exercise of the power by that cotrustee.

701.20(4)(f)

(f) Terms of a trust that limit the power of a trustee to make an adjustment between principal and income do not affect the application of this subsection unless it is clear from the terms of the trust that the terms are intended to deny the trustee the power of adjustment conferred by para. (a).

701.20(4c)(b)

(b) A trustee may, but is not required to, obtain approval of a proposed action under sub. (a) by providing a written notice that complies with all of the following:

701.20(4)(e)

(e) A trustee may release the entire power conferred by para. (a) or may release only the power to adjust from income to principal or the power to adjust from principal to income if the trustee is uncertain about whether possessing or exercising the power will cause a result described in par. (c) 1. to 6. or if the trustee determines that possessing or exercising the power will or may deprive the trust of a tax benefit or impose a tax burden not described in para. (c). The release may be permanent or for a specified period, including a period measured by the life of an individual.

701.20(4c)(b)2.

2. Is given in the manner provided in ch. 879, except that notice by publication is not required.

701.20(4c)(b)3.b.

b. Eligible to receive, if no powers of appointment were exercised, income from the trust if the interest of all of those eligible to receive income under subd. 3. a. were to terminate immediately before the giving of notice.

701.20(4c)(b)3.c.

c. A recipient, if no powers of appointment were exercised, of a distribution of principal if the trust were to terminate immediately before the giving of the notice.

701.20(21)(b)

(b) In determining net receipts to be allocated under para. (a), a trustee shall deduct and transfer to principal a reasonable amount for depletion.

701.20(21)(d)

(d) If a trust owns an interest in timberland on May 17, 2005, the trustee may allocate net receipts from the sale of timber and related products as provided in this subsection or in the manner used by the trustee before May 17, 2005. If the trust acquires an interest in timberland after May 17, 2005, the trustee shall allocate net receipts from the sale of timber and related products as provided in this subsection.

701.20(22)(a)

(a) If a marital deduction is allowed for all or part of a trust whose assets consist substantially of property that does not provide the surviving spouse with sufficient income from or use of the trust assets, and if the amounts that the trustee transfers from principal to income under sub. (4) and distributes to the spouse from principal in accordance with the terms of the trust are insufficient to provide the spouse with the beneficial enjoyment required to obtain the marital deduction, the spouse may require the trustee to make property productive of income, convert property within a reasonable time, or exercise the power conferred by sub. (a). The trustee may decide which action or combination of actions to take.

701.20(25)(c)

(c) All of the other ordinary expenses incurred in connection with the administration, management, or preservation of trust property and the distribution of income, including interest, ordinary repairs, regularly recurring taxes assessed against principal, and expenses of a proceeding or other matter that concerns primarily the income interest.

701.20(26)(a)1.

1. The remaining one-half of the disbursements described in sub. (a) and (b).

701.20(26)(a)2.

2. All of the trustee’s compensation calculated on principal as a fee for acceptance, distribution, or termination, and disbursements made to prepare property for sale.

701.20(26)(a)4.

4. Expenses of a proceeding that concerns primarily principal, including a proceeding to construe the trust or to protect the trust or its property.

701.20(26)(a)5.

5. Premiums paid on a policy of insurance not described in sub. (d) of which the trust is the owner and beneficiary.

701.20(26)(a)7.

7. Disbursements related to environmental matters, including reclamation, assessing environmental conditions, remedying and removing environmental contamination, monitoring remedial activities and the release of substances, preventing future releases of substances, collecting amounts from persons liable or potentially liable for the costs of those activities, penalties imposed under environmental laws or regulations and other payments made to comply with those laws or regulations, statutory or common law claims by 3rd parties, and defending claims based on environmental matters.

701.20(26)(b)

(b) If a principal asset is encumbered with an obligation that requires income from that asset to be paid directly to the creditor, the trustee shall transfer from principal to income an amount equal to the income paid to the creditor in reduction of the principal balance of the obligation.

701.20(4)

(4) Trustee’s power to adjust.

701.20(4)(b)1.

1. The nature, purpose, and expected duration of the trust.

701.20(4)(b)2.

2. The intent of the settlor.

701.20(27)(a)

(a) In this subsection, “depreciation” means a reduction in value due to wear, tear, decay, corrosion, or gradual obsolescence of a fixed asset having a useful life of more than one year.

701.20(27)(b)

(b) A trustee may transfer to principal a reasonable amount of the net cash receipts from a principal asset that is subject to depreciation, but may not transfer any amount for depreciation:

701.20(27)(b)1.

1. Of that portion of real property used or available for use by a beneficiary as a residence or of tangible personal property held or made available for the personal use or enjoyment of a beneficiary.

701.20(27)(b)3.

3. Under this subsection if the trustee is accounting under sub. (12) for the business or activity in which the asset is used.

701.20(28)(a)

(a) If a trustee makes or expects to make a principal disbursement described in this subsection, the trustee may transfer an appropriate amount from income to principal in one or more accounting periods to reimburse principal or to provide a reserve for future principal disbursements.

701.20(28)(b)

(b) Principal disbursements to which para. (a) applies include the following, but only to the extent that the trustee has not been and does not expect to be reimbursed by a 3rd party:

701.20(28)(b)2.

2. A capital improvement to a principal asset, whether in the form of changes to an existing asset or the construction of a new asset, including special assessments.

701.20(28)(b)4.

4. Periodic payments on an obligation secured by a principal asset to the extent that the amount transferred from income to principal for depreciation is less than the periodic payments.

701.20(28)(b)5.

5. Disbursements described in sub. (26) (a) 7.

701.20(28)(c)

(c) If the asset whose ownership gives rise to the disbursements becomes subject to a successive income interest after an income interest ends, a trustee may continue to transfer amounts from income to principal as provided in para. (a).

701.20(4c)(b)4.b.

b. A description of the proposed action.

701.20(4c)(b)4.c.

c. The time within which a beneficiary may object to the proposed action, which shall be at least 30 days after the giving of the notice.

701.20(4)(c)7.

7. If the trustee is a beneficiary of the trust.

701.20(4c)

(4c) Notice to beneficiaries of proposed action.

701.20(4c)(b)1.

1. Is given at least 30 days before the proposed effective date of the proposed action.

701.20(4)(b)3.

3. The identity and circumstances of the beneficiaries.

701.20(4)(b)4.

4. The needs for liquidity, regularity of income, and preservation and appreciation of capital.

701.20(4)(b)8.

8. The actual and anticipated effect of economic conditions on principal and income and effects of inflation and deflation.

701.20(4)(b)9.

9. The anticipated tax consequences of an adjustment.

701.20(4)(c)

(c) A trustee may not make an adjustment:

701.20(4)(c)3.

3. That changes the amount payable to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust assets.

701.20

701.20 Principal and income.

701.20(2)(e)

(e) “Income beneficiary” means a person to whom net income of a trust is or may be payable.

701.20(2)(k)

(k) “Remainder beneficiary” means a person entitled to receive principal when an income interest ends.

701.20(2)(a)

(a) “Accounting period” means a calendar year, unless a fiduciary selects another 12-month period, and includes a portion of a calendar year or other 12-month period that begins when an income interest begins or that ends when an income interest ends.

701.20(2)(b)

(b) “Beneficiary” means a person who has a beneficial interest in a trust or an estate and includes, in the case of a decedent’s estate, an heir, a legatee, and a devisee and, in the case of a trust, an income beneficiary and a remainder beneficiary.

701.20(2)(c)

(c) “Fiduciary” means a personal representative or a trustee and includes an executor, administrator, successor personal representative, special administrator, and a person performing substantially the same function as any of those.

701.20(2)(d)

(d) “Income” means money or property that a fiduciary receives as current return from a principal asset. “Income” includes a portion of receipts from a sale, exchange, or liquidation of a principal asset, to the extent provided in subs. (10) to (24).

701.20(2)(f)

(f) “Income interest” means the right of an income beneficiary to receive all or part of net income, whether the terms of the trust require it to be distributed or authorize it to be distributed in the trustee’s discretion.

701.20(2)(L)1.

1. A court-appointed guardian of a beneficiary who is adjudicated incompetent.

701.20(2)(L)2.

2. An agent for an incapacitated beneficiary.

701.20(2)(L)3.

3. A court-appointed guardian of a minor beneficiary’s estate or, if there is no court-appointed guardian, the parents of the minor beneficiary.

701.20(2)(n)

(n) “Trustee” includes an original, additional, or successor trustee, whether or not appointed or confirmed by a court.

701.20(2)(g)

(g) “Mandatory income interest” means the right of an income beneficiary to receive net income that the terms of the trust require the fiduciary to distribute.

701.20(2)(h)

(h) “Net income” means the total receipts allocated to income during an accounting period, minus the disbursements made from income during the period, plus or minus transfers under this section to or from income during the period.

701.20(2)(i)

(i) “Person” means an individual; corporation; business trust; estate; trust; partnership; limited liability company; association; joint venture; government; governmental subdivision, agency, or instrumentality; public corporation; or any other legal or commercial entity.

701.20(2)(j)

(j) “Principal” means property held in trust for distribution to a remainder beneficiary when the trust terminates or property held in trust in perpetuity.

701.20(2)(m)

(m) “Terms of a trust” means the manifestation of the intent of a settlor or decedent with respect to a trust, expressed in a manner that admits of its proof in a judicial proceeding, whether by written or spoken words or by conduct.

701.20(3)(a)

(a) In allocating receipts and disbursements to income or principal or between income and principal, and with respect to any matter within the scope of subs. (5) to (9), a fiduciary:

701.20(3)(a)1.

1. Shall first administer a trust or estate in accordance with the terms of the trust or the will, even if there is a different provision in this section.

701.20(3)(a)2.

2. May administer a trust or estate by the exercise of a discretionary power of administration given to the fiduciary by the terms of the trust or the will, even if the exercise of the power produces a result different from a result required or permitted by this section.

701.20(3)(a)3.

3. Shall administer a trust or estate in accordance with this section if the terms of the trust or the will do not contain a different provision or do not give the fiduciary a discretionary power of administration.

701.20(3)(a)4.

4. Shall add a receipt or charge a disbursement to principal to the extent that the terms of the trust and this section do not provide a rule for allocating the receipt or disbursement to principal or income or between principal and income.

701.20(3)(b)

(b) In exercising the power to adjust under sub. (a) or a discretionary power of administration regarding a matter within the scope of this section, whether granted by the terms of a trust, a will, or this section, a fiduciary shall administer a trust or estate impartially, based on what is fair and reasonable to all of the beneficiaries, except to the extent that the terms of the trust or the will clearly manifest an intention that the fiduciary shall or may favor one or more of the beneficiaries. A determination in accordance with this section is presumed to be fair and reasonable to all of the beneficiaries.

701.20(4)(a)

(a) A trustee may adjust between principal and income to the extent the trustee considers necessary if the trustee invests and manages trust assets as a prudent investor, the terms of the trust describe the amount that may or must be distributed to a beneficiary by referring to the trust’s income, and the trustee determines, after applying the rules in sub. (a), that the trustee is unable to comply with sub. (b).

701.20(4c)(b)3.

3. Is given to all sui juris beneficiaries who are any of the following:

701.20(4c)(b)4.d.

d. The effective date of the proposed action if no objection is received from any beneficiary within the time specified in subd. 4. c.

701.20(4c)(c)

(c) If a trustee gives notice of a proposed action under this subsection, the trustee is not required to give notice to a sui juris beneficiary who consents to the proposed action in writing at any time before or after the proposed action is taken.

701.20(4c)(d)

(d) A sui juris beneficiary may object to the proposed action by giving a written objection to the trustee within the time specified in the notice under par. (b) 4. c.

701.20(4c)(e)

(e) A trustee may decide not to take a proposed action after the trustee receives a written objection to the proposed action or at any other time for any other reason. In that case, the trustee shall give written notice to the sui juris beneficiaries of the decision not to take the proposed action.

701.20(4c)(f)

(f) If a trustee receives a written objection to a proposed action within the time specified in the notice under par. (b) 4. c., either the trustee or the beneficiary making the written objection may petition the court to have the proposed action approved, modified, or prohibited. In the court proceeding, the beneficiary objecting to the proposed action has the burden of proving that the proposed action should be modified or prohibited. A beneficiary who did not make the written objection may oppose the proposed action in the court proceeding.

701.20(4c)(g)

(g) For purposes of this subsection, a proposed action under sub. (4) includes a course of action or a decision not to take action under sub. (4).

701.20(4g)

(4g) Conversion to unitrust.

701.20(4g)(a)

(a) Subject to par. (d), a trust may be converted to a unitrust in any of the following ways:

701.20(4g)(a)1.

1. By the trustee, at his or her own discretion or at the request of a beneficiary, if all of the following apply:

701.20(4g)(a)1.a.

a. The trustee determines that the conversion will enable the trustee to better carry out the purposes of the trust.

701.20(4g)(a)1.b.

b. The trustee provides notice in the same manner as provided in sub. (4c) (b) of the trustee’s intention to convert the trust to a unitrust, and the notice advises how the unitrust will operate, including the fixed percentage under par. (c) 1. and any other initial determinations under par. (c) 4. that the trustee intends to follow.

701.20(4g)(a)1.d.

d. Every sui juris beneficiary consents to the conversion to a unitrust in a writing delivered to the trustee.

701.20(4g)(a)1.c.

c. There is at least one sui juris beneficiary under sub. (4c) (b) 3. a. and at least one other sui juris beneficiary under sub. (4c) (b) 3. b. or c.

701.20(4g)(a)1.e.

e. The terms of the trust describe the amount that may or must be distributed by referring to the trust income.

701.20(4g)(a)2.

2. By a court on the petition of the trustee or a beneficiary, if all of the following apply:

701.20(4g)(a)2.a.

a. The trustee or beneficiary has provided notice under sub. (4c) of the intention to request the court to convert the trust to a unitrust, and the notice advises how the unitrust will operate, including the fixed percentage under par. (c) 1. and any other initial determinations under par. (c) 4. that will be requested.

701.20(4g)(a)2.b.

b. The court determines that the conversion to a unitrust will enable the trustee to better carry out the purposes of the trust.

701.20(4g)(b)

(b) In deciding whether to convert the trust to a unitrust under par. (a) 1., the trustee shall consider all relevant factors under sub. (4) (b) 1. to 9.

701.20(4g)(c)

(c)

701.20(4g)(c)4.b.

b. Standards for prorating a distribution for a short year in which a beneficiary’s right to payments commences or ceases.

701.20(4g)(c)4.c.

c. The effect on the valuation of the unitrust’s assets of other payments from, or contributions to, the unitrust.

701.20(4g)(c)4.d.

d. How, and how frequently, to value the unitrust’s assets.

701.20(4g)(c)4.e.

e. The valuation dates to use.

701.20(7)(b)

(b) An asset becomes subject to a trust:

701.20(7)(b)1.

1. On the date it is transferred to the trust in the case of an asset that is transferred to a trust during the transferor’s life.

701.20(7)(b)3.

3. On the date of an individual’s death in the case of an asset that a 3rd party transfers to a fiduciary because of the individual’s death.

701.20(4g)(c)1.

1. If a trust is converted to a unitrust under this subsection by the trustee or a court, notwithstanding sub. (3) (a) 1. and 4. and § 701.21 (4) the trustee shall make distributions in accordance with the creating instrument, except that any reference in the creating instrument to “income” means a fixed percentage of the net fair market value of the unitrust’s assets, whether such assets otherwise would be considered income or principal under this section, averaged over a preceding period determined by the trustee, which is at least 3 years but not more than 5 years, or the period since the original trust was created, whichever is less.

701.20(4g)(c)2.

2.

701.20(4g)(c)2.a.

a. Subject to subd. 2. b., if the trust is converted to a unitrust under par. (a) 1., the trustee shall determine the fixed percentage to be applied under subd. 1., and the notice under par. (a) 1. b. must state the fixed percentage. If the trust is converted to a unitrust under par. (a) 2., the court shall determine the fixed percentage to be applied under subd. 1.

701.20(4g)(c)2.b.

b. Any fixed percentage under subd. 1. that is determined by a trustee may not be less than 3 percent nor more than 5 percent.

701.20(4g)(c)3.

3. After a trust is converted to a unitrust, the trustee may, subject to the notice requirement under sub. (4c) and with the consent of every sui juris beneficiary, do any of the following:

701.20(4g)(c)3.a.

a. Convert the unitrust back to the original trust under the creating instrument.

701.20(4g)(c)3.b.

b. Change the fixed percentage under subd. 1., subject to subd. 2. b.

701.20(4g)(c)4.

4. After a trust is converted to a unitrust, a trustee may determine or change any of the following:

701.20(4g)(c)4.a.

a. The frequency of distributions during the year.

701.20(4g)(c)4.f.

f. Whether to omit from the calculation of the value of the unitrust’s assets unitrust property occupied by or in the possession of a beneficiary.

701.20(4g)(c)4.g.

g. The averaging under subd. 1. to a different preceding period, which is at least 3 years but not more than 5 years.

701.20(4g)(c)4.h.

h. Any other matters necessary for the proper functioning of the unitrust.

701.20(4g)(c)5.

5. The trustee may not deduct from a unitrust distribution expenses that would be deducted from income if the trust were not a unitrust.

701.20(4g)(c)6.

6. Unless otherwise provided by the creating instrument, the unitrust distribution is considered to have been paid from the following sources in the order of priority:

701.20(4g)(c)6.a.

a. Net income, determined as if the trust were not a unitrust.

701.20(4g)(c)6.b.

b. Ordinary income for federal income tax purposes that is not net income under subd. 6. a.

701.20(4g)(c)6.c.

c. Net realized short-term capital gains for federal income tax purposes.

701.20(4g)(c)6.d.

d. Net realized long-term capital gain for federal income tax purposes.

701.20(4g)(c)6.e.

e. Principal.

701.20(4g)(c)7.

7. A court may, on the petition of the trustee or a beneficiary, do any of the following:

701.20(4g)(c)7.a.

a. Change the fixed percentage that was determined under subd. 2. by the trustee or by a prior court order.

701.20(4g)(c)7.b.

b. If necessary to preserve a tax benefit, provide for a distribution of net income, determined as if the trust were not a unitrust, that exceeds the unitrust distribution.

701.20(4g)(c)7.c.

c. Average the valuation of the unitrust’s assets over a period other than that specified in subd. 1.

701.20(4g)(c)7.d.

d. Require the unitrust to be converted back to the original trust under the creating instrument.

701.20(4g)(d)

(d)

701.20(4g)(d)1.

1. A trust may not be converted under this subsection to a unitrust if any of the following applies:

701.20(4g)(d)1.a.

a. The creating instrument specifically prohibits the conversion.

701.20(4g)(d)1.g.

g. A trustee is a beneficiary of the trust.

701.20(4g)(c)8.

8. Conversion to a unitrust under this subsection does not affect a provision in the creating instrument that directs or authorizes the trustee to distribute principal or that authorizes a beneficiary to withdraw a portion or all of the principal.

701.20(4g)(d)1.b.

b. Payment of the unitrust distribution will change the amount payable to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust assets.

701.20(4g)(d)1.c.

c. The unitrust distribution will be made from any amount that is permanently set aside for charitable purposes under the creating instrument and for which an estate or gift tax charitable deduction has been taken, unless both income and principal are so set aside.

701.20(4g)(d)1.d.

d. Converting to a unitrust will cause an individual to be treated as the owner of all or part of the trust for income tax purposes and the individual would not be treated as the owner if the trust were not converted.

701.20(4g)(d)1.e.

e. Converting to a unitrust will cause all or a part of the trust assets to be subject to estate or gift tax with respect to an individual and the trust assets would not be subject to estate or gift tax with respect to the individual if the trust were not converted.

701.20(4g)(d)1.f.

f. Converting to a unitrust will result in the disallowance of an estate or gift tax marital deduction that would be allowed if the trust were not converted.

701.20(4g)(d)2.

2. Notwithstanding subd. 1., if a trust may not be converted to a unitrust solely because subd. 1. g. applies to a trustee, a cotrustee, if any, to whom subd. 1. g. does not apply may convert the trust to a unitrust under par. (a) 1., unless prohibited by the creating instrument, or a court may convert the trust to a unitrust under par. (a) 2. on the petition of a trustee or beneficiary.

701.20(4j)(b)6.b.

b. Ordinary income for federal income tax purposes that is not net income under subd. 6. a.

701.20(4j)(b)7.

7. The trust document may provide that assets used by the trust beneficiary, such as a residence or tangible personal property, may be excluded from the net fair market value for computing the unitrust amount. Such use may be considered equivalent to the income or unitrust amount.

701.20(4j)(b)8.

8. In the absence of contrary provisions in the governing document of an express unitrust, the provisions of sub. (4g) (c) 1., 4., and 5. apply.

701.20(8)

(8) Apportionment of receipts and disbursements when decedent dies or income interest begins.

701.20(4g)(e)

(e) A trustee may release the power conferred by par. (a) 1. if the trustee is uncertain about whether possessing or exercising the power will cause a result described in par. (d) 1. b. to f. or if the trustee determines that possessing or exercising the power will or may deprive the trust of a tax benefit or impose a tax burden not described in par. (d) 1. The release may be permanent or for a specified period, including a period measured by the life of an individual.

701.20(4j)

(4j) Express unitrusts.

701.20(4j)(a)

(a) In this subsection “express unitrust” means any trust that by its governing instrument requires the distribution at least annually of a unitrust amount equal to a fixed percentage of the net fair market value of the trust’s assets, valued at least annually, other than a trust solely for charitable purposes or a charitable split-interest trust under section 664 (d) or 170 (f) (2) (B) of the Internal Revenue Code.

701.20(4j)(b)

(b) The following apply to an express unitrust:

701.20(4j)(b)1.

1. To the extent not otherwise provided for in the governing instrument, the unitrust amount of not less than 3 percent nor more than 5 percent may be determined by reference to the net fair market value of the trust’s assets averaged over a preceding period determined by the truste